The owners overspent on unnecessary stadiums, and now they want the players to work more for less pay to help pay down the debt. That’s your entire labor dispute in one sentence.

That’s from the Mises blog, and the post is interesting throughout. The following is also important for understanding the NFL as government sanction and sponsored business entity:

The NFL is really two distinct products. There’s the in-stadium product represented by Jerry World and its taxpayer-financed brethren. And then there’s the way most people consume football, the television product produced by the major broadcast networks and ESPN. NFL-TV is a great product whose popularity remains high. NFL-Stadium is struggling to pay the mortgage.

Regardless of how this labor dispute plays out, the future of football has to be in NFL as TV (and internet video, i.e. ESPN3), rather than the stadium experience. I don’t find going to pro games all that enjoyable. I much prefer going to college games (or even baseball games, and I don’t really even like baseball); such games are typically a blast, largely because they are a much more personal experience. Indeed, the only thing I really like about going to a pro game in person is that I get a better angle with which to watch the game, and TV and internet video options are beginning to finally provide more options in this respect. At the end of the day, for the NFL, the TV experience, whether at home or in a bar, is really superior.

The NFL business model is bizarre and discussions with most people about the labor dispute quickly degenerate because of the complexity as they take up the slogans of one side or the other. The analysis is neither laissez-faire capitalism nor typical labor economics nor even a the economics of a regulated public utility; it’s some weird unknowable mixture of a cartel and consumer business, and that makes all of these disputes both fascinating and maddening.

It’s not really a shock that there is a strange labor dispute going on, unilaterally initiated not by the union but by the owners in a way that few can analyze satisfactorily. Indeed, count up the factors: (i) The NFL is heavily subsidized by the government, (ii) with respect to the players selling their services, it’s a monopsony, and (iii) for the rest of us (and with government and to a lesser extent court approval), it’s an oligopoly. Put together, that is unlikely to lead to an efficient market. In the end, most of us just want to see someone pick up the damn football and play.

We looked at the head coaches, offensive coordinators and defensive coordinators for the 66 major-conference schools, plus Notre Dame, and found that with a few high-profile exceptions, NFL experience isn’t a great recipe for success on Saturdays. Most notably, Pittsburgh’s Dave Wannstedt, the former Bears and Dolphins head coach, resigned under pressure in December. Meanwhile, California, Virginia and Oregon State all finished below .500 despite the gaudy NFL résumés of their coaches. The staff that logged the most NFL years was Stanford’s. New 49ers coach Jim Harbaugh and his coordinators, David Shaw and Vic Fangio, combined to coach in the NFL for 35 years, and the 12-1 Cardinal were better for it.

But Monday’s BCS championship game was more proof that coaches can do just fine without NFL grooming. Of the game’s two coaches and four coordinators, only Oregon defensive coordinator Nick Aliotti made a pit stop in the NFL, while Auburn’s troika was one of 21 that’s never worked on Sundays.

That’s from the Wall Street Journal. I’d like to see what factors do predict winning, preferably by running a regression analysis of BCS conference coaches, with, Y, the dependent variable, being winning percentage (with, say, a minimum of three years coaching). I’m curious what Xs, or independent variables, would be statistically significant. A non-exhaustive list of candidates:

Years of NFL coaching experience.

Years of previous head coaching experience (any level).

Years of coordinator-level experience (college or higher).

Rank of offenses/defenses in scoring, total yards, and yards per play.

Rank of offenses/defenses in rushing or passing, individually, in adjusted yards per attempt.

I’m sure there are other plausible ones; please add on in the comments. Also, please tell me why the test wouldn’t work if set up this way, and how it could be improved. I’d actually be surprised if any of these factors turned out to be statistically significant, but I’m also not aware of anyone working something like this out.

Personally, I think they’re all overpaid, rookies and veterans. If you ask most football players if they would still play football for $80,000 per year instead of $800,000 or $8 million, they’d say yes. It’s almost certainly a better proposition than whatever else they’d be able to do in the labor market. If Sam Bradford had the choice between playing in the NFL for $80k/yr or looking for an entry level job in Oklahoma City, what do you think he’d do? Every dollar above $80k is icing on the cake. Technically, it could be considered economic rent.

In economic terms, rent is a misnomer. It does not refer to money you pay a landlord for your apartment. It refers to the money above the minimum amount required to induce the employment of a resource. There is always rent claimed by both sides of all voluntary transactions, otherwise people wouldn’t agree to the transaction in the first place. . . .

It seems to me almost all of the economic rent in professional sports goes to the players. It’s hard to imagine any other multi-billion dollar company paying more than 60% of its revenue to a few hundred employees. It’s not that the salaries are high in absolute terms, it’s that the athletes should gladly play for far less.

I tend to agree… or do I? I am conflicted. It is a plausible account, but there is a lot of uncertainty there as well. One, the NFL and other sports leagues are already incredibly distorted markets, aided as they are by exceptions to anti-trade law and a general public (to say nothing of lawmakers and judges) who are fine giving the NFL monopoly power over professional football (which may be a perfectly rational and fine choice). Second, and more importantly, the lifespan of an NFL player is blisteringly short. I’ve heard a variety of estimates, but most often the estimate is put at around 2-3 years; never have I heard even five seasons.

This skews the incentives. Were Sam Bradford to have taken the $80,000 a year job, he would be giving up a lot now, but it’s much more likely that his other career would last far longer, and as a result his income would be much smoother. And of course the number one pick is not really the appropriate metric; it’s not evident that, from a financial perspective at least, making around $400,000 a year for three or even four years and then having no career prospects at all is better than starting in a $70,000/year job with growth potential and stability. (I know in this economy nothing is certain.)

Two points flow from this. The first is that it cannot be accurate to compare an NFL player’s salary with the salary of Joe Schmo, office manager. Their income stream is more like that of an artist, or even an entrepreneur — variable with their success, with great opportunity to be set for life, with also a high likelihood of bust. As I’ve pointed out, 78% of NFL players file for bankruptcy. As this NY Times article points out, it’s not easy to manage your money if it comes in irregular, large chunks, followed by long dry-spells.

And second, if you make your money at once you end up paying more in taxes than someone who earned the same total amount, in smoother fashion, over the same period. To use an example of an entrepreneur, imagine the there are only two tax rates: 40% if you make over $200,000 and 20% if you make over $45,000. If two neighbors both make $500,000 over five years, with neighbor 1 making $100,000 every year while neighbor 2 making $250,000 twice and zero in the other years, neighbor 1 will have paid $100,000 in taxes while neighbor 2 will have paid $200,000.

Is any of this determinative of whether or not football players make too much? No, but I think it all adds a significant layer of uncertainty to their ability to make a living that, particularly when coupled with the well documented health issues that come from playing football, including brain injuries, make high incomes somewhat more understandable, even if they could be characterized as raw economic rents.

The NFL, having convinced both a district court and the Seventh Circuit Court of Appeals that it was a “single-entity” for anti-trust purposes and thus exempt from anti-trust liability under Section 1 of the Sherman Act, asked the U.S. Supreme Court to make that the law of the land for the entire country. Justice John Paul Stevens, writing for a unanimous court, said simply:

The case was brought by American Needle, an apparel maker from Illinois that lost its contract with the league when the N.F.L. entered into an exclusive 10-year, $250 million deal with Reebok in late 2000 to produce hats, jerseys and other league-branded merchandise.

American Needle argued that the league’s deal with Reebok violated antitrust law because the N.F.L. was a collection of individually owned teams that compete with one another, not a single entity able to negotiate contracts on behalf of its teams. By striking a deal with Reebok, the league effectively conspired to stifle competition, the company argued.

American Needle appealed to the Supreme Court….

In rejecting the position of the NFL (and that of the various other leagues who filed briefs in support of the NFL), the Court explained (I’ve removed the citations):

“Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” is made illegal by §1 of the Sherman Act. The question whether an arrangement is a contract, combination, or conspiracy is different from and antecedent to the question whether it unreasonably restrains trade. This case raises that antecedent question about the business of the 32 teams in the National Football League (NFL) and a corporate entity that they formed to manage their intellectual property…

[…]

“[S]ubstance, not form, should determine whether a[n] . . . entity is capable of conspiring under §1.” This inquiry is sometimes described as asking whether the alleged conspirators are a single entity. That is perhaps a misdescription, however, because the question is not whether the defendant is a legally single entity or has a single name; nor is the question whether the parties involved “seem” like one firm or multiple firms in any metaphysical sense… The relevant inquiry, therefore, is whether there is a “contract, combination . . . or conspiracy” amongst “separate economic actors pursuing separate economic interests,” such that the agreement “deprives the marketplace of independent centers of decision-making” and therefore of “diversity of entrepreneurial interests.”

In applying this framework, the Court rejected the NFL and lower courts’ rationale that the NFL is a “single-entity” because the NFL is seems like a single-entity in what it termed a “metaphysical sense,” simply because you need multiple teams and hence cooperation to play a football game:

Each of the teams is a substantial, independently owned, and independently managed business. “[T]heir general corporate actions are guided or determined” by “separate corporate consciousnesses,” and “[t]heir objectives are” not “common.”… Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each “corporation itself”… Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that “depriv[e] the marketplace of independent centers of decision-making,” and therefore of actual or potential competition.

[The NFL and its teams] argue that they constitute a single entity because without their cooperation, there would be no NFL football….But that does not mean that necessity of cooperation transforms concerted action into independent action; a nut and a bolt can only operate together but an agreement between nut and bolt manufacturers is still subject to §1 analysis. Nor does it mean that once a group of firms agree to produce a joint product, cooperation amongst those firms must be treated as independent conduct. The mere fact that the teams operate jointly in some sense does not mean that they are immune.

And in a footnote, the Court summed up its rejection of the “Zen riddle: Who wins when a football team plays itself?” argument the NFL advanced:

Although two teams are needed to play a football game, not all aspects of elaborate inter-league cooperation are necessary to produce a game. Moreover, even if league-wide agreements are necessary to produce football, it does not follow that concerted activity in marketing intellectual property is necessary to produce football.

The Court of Appeals carved out a zone of antitrust immunity for conduct arguably related to league operations by reasoning that coordinated team trademark sales are necessary to produce “NFL football,” a single NFL brand that competes against other forms of entertainment. But defining the product as “NFL football” puts the cart before the horse: Of course the NFL produces NFL football; but that does not mean that cooperation amongst NFL teams is immune from §1 scrutiny. Members of any cartel could insist that their cooperation is necessary to produce the “cartel product” and compete with other products.

(Emphasis mine.) This is correct: the NFL’s position was really too bizarre to stand (hence the unanimity in rejecting it). But it’s also true that this case is not that significant: it merely overturned the ruling of one outlier lower court, and otherwise it was a narrow opinion. It did not rule out that the NFL could ultimately win the case — indeed, it sent fairly clear signals that the NFL ought to win under the “rule of reason” analysis (which again speaks to why it was so weird that the NFL wanted pure immunity in the first place). All the Court determined was that the NFL could be liable.

So it was a narrow case, likely to soon be forgotten other than as a real but relatively minor humiliation of the NFL’s upper management and legal counsel for asking the Supreme Court to take the case in the first place (a rare thing for a party that wins in a lower court). Lyle Denniston of Scotusblog explains the ho-hum nature of the case:

And plenty of other examples exist, as Americans continue to buy up the English Premier League, as concern grows that debt financing in high end soccer (Real Madrid, AC Barcelona are almost as debt ridden, Arsenal isn’t far behind) is reaching unsustainable levels. I’ll note that the most indebted teams are the ones who have been playing in the Champion’s League finals, of late, and the least indebted ones – those would be the non-private equity owned German teams (often owned by their fans, in fact) – are not. But that too, smacks of the risk-or-insolvency strategy that, fair or not, is almost as associated with private equity strategy as is a love of debt.

And one can go further. . . . It’s armchair empiricism at best, but if I were in major league baseball, the one American sport without a salary cap, I would worry about selling another franchise to a private equity firm.

This question runs right to the core of the paradox of big time sports, with a modern financial crisis twist. For traditional businesses, there is (generally) a single primary goal: become and remain profitable, thus ensuring that you survive. Many people assume that all businesses do this well and the only issue is how to fairly distribute their profits, but if you take the longer view you’d be surprised how much turnover there is among the largest companies — many that at one time were among the largest on the planet now no longer exist. A perusal of the companies that historically made up the Dow Jones Industrial Average confirms this. So remaining profitable is a constant struggle.

On the other side, you have the teams’ professed goal: to win games and championships. Of course it’s not clear that these two interests are aligned: sure, more wins tends to result in more ticket sales and sales of merchandise, but putting out such a good product requires expensive players, expensive coaches, and expensive facilities. There’s no guarantee that the “break-even” point from a profit or business standpoint would result in championship level output. It might be to have a winning season but avoid New York Yankees levels of expenses.

This tension is not new, and the two motives have generally been able to coexist. Everyone, at least implicitly, understands that sports teams must at least make some money (just ask the USFL what it is like to have an unprofitable sports franchise), but fans and the sports media tend to turn on owners who are perceived as pursuing profits ahead of wins. The most beloved owners tend to be the ones who establish an image of being willing to spend and even lose money to see their team succeed, even if in practice that is really the case. But things have gotten more interesting in recent years.

There are a number of factors now that have not always been present in major sports. The first factor is the one that underlies them all, which is that, at least in certain sports like professional football, it would be very difficult for a franchise to actually be unprofitable. This is because the league as a whole generates massive revenues, and it redistributes much of that revenue among the various teams, including TV revenues, merchandising, and even some team specific revenues get redistributed to other teams (though that may change). Buttressing this is that, despite the high demand for professional football, the league has an effective monopoly over the sport and limits the numbers of teams.

This sounds like a strange point but think about it: The NFL limits the league to keep the revenues per team artificially high, whereas if you wanted to open up the market for football teams (i.e. if we imagine the NFL didn’t enjoy all the legal exemptions it now does to restrict who can have a team), you’d see a lot of people starting new football teams because each one, even the bad ones, enjoys profits. It’s the old supply and demand argument: if you are making big profits making widgets, eventually — unless there are significant barriers to entry — others will jump in and sell widgets too and get profits too, until the market got saturated. Don’t think others would start teams? I believe they would (though I admit this example is very artificial) as there are many geographic areas of the country without a football team and, further, football, being a sport, would attract many wealthy hobbyists. Think about horse racing: The sport of kings is profitable for very few owners despite the large purses for winning, because, to oversimplify, wealthy people can buy a horse, get it cleared, and begin competing.

The point is that NFL teams effectively make monopoly profits, which allows them more freedom to “go for winning” as opposed to always focusing on profitability. But that’s not always the case with sports leagues, as we’ve seen with European soccer and other leagues, including non-NFL football leagues.

Next, you have the imposition of the salary cap, which is a great deal for owners and a terrible one for players. Of course, that is different than saying it is bad for sports fans, because it might well be good for them (competitive balance and all that). But it’s a terrible deal for players as a whole because it makes competing for salaries a zero sum game: Assuming teams max out the salary cap (as most teams effectively do in football), each additional dollar a player earns is taken from a teammate. On the other hand, for owners it protects them from the hard business versus winning decisions owners in leagues with looser salary caps must make. In Major League Baseball, every team is compared to the Yankees and Red Sox, simply because they tend to outspend everyone else. Sure, when a lesser team wins it’s a great underdog story, and occasionally it gives rise to superior management techniques as with Moneyball, but sports contests are like wars between countries: At the end of the day, the bigger team with more resources is probably going to win.

If you combine the above two points, you have a very owner-friendly system in a league like the NFL: You have guaranteed profits from your restrictions on other entrants into the market and you have alleviated pressure from the fans and media to focus on winning by spending more because of the salary cap.

It was Goodell, however, who was the focus of interest for Representative John Conyers Jr., Democrat of Michigan, the committee’s chairman. Conyers pressed Goodell to address the link between concussions sustained while playing football and long-term brain deterioration. The N.F.L., mostly through the comments of Dr. Ira Casson, the head of the league’s concussion committee, has frequently played down studies that have made such a link and cited the need for further study.

Asked by Conyers whether he believed there was a link between concussions and dementia, Goodell replied, “The answer is, medical experts would know better than I do.” He went on to say that he encouraged the debate and that the league was adjusting rules and standards of care to make the game safer even before the answer is found. . . .

“In a matter of public health, I do not think it’s acceptable for the league and the players association to hide behind the collective bargaining agreement,” Conyers said. “These are life-and-death issues that go to the heart of our most popular sport.”. . .

In his opening remarks, Smith, the director of the players union, did not directly take issue with the N.F.L.’s approach, although in the statement he filed with the committee he assailed the N.F.L. for “denigrating, suppressing and ignoring” research that has linked football concussions to long-term cognitive degeneration. He did, however, declare that medical issues should not be subject to negotiation in the collective bargaining agreement.

“The players of the N.F.L. will not bargain for medical care,” he said. “We will not bargain for safety. We will continue to bargain with the league, but medical care is not a bargaining issue.” . . .

Dr. Robert Cantu, a researcher from Boston University’s School of Medicine, said he believed there was “ongoing and convincing evidence” of a link between sports concussions and long-term illness. Culverhouse, former president of the Tampa Bay Buccaneers and daughter of the franchise’s original owner, made the most emotional plea in her opening statement, choosing to focus on the status of team doctors. She called for independent doctors to work at games, caring for players on both sidelines.

“What this committee has to understand is, the team doctor is hired by the coach and paid by the front office,” Culverhouse said. “This team doctor is not an advocate for the players. That doctor’s role is to get those players back on the field. I have seen a wall of players surround a player as he has his knee injected so he can get back on the field.

“The players get to a point where they refuse to tell the team doctor they have suffered a concussion. They do not self-report because they know there is a backup player on the bench ready to take their position. The team doctor dresses as a coach on the sideline and he acts in many ways as a coach on the sideline. If a player chooses independent medical counsel he is considered ‘not a team player.’ He becomes a pariah. We need to stop that.” . . .

I thought this was interesting, especially this latter part. Here’s my question: Why hasn’t the players’ union hired independent (at least independent of the NFL and individual franchise) doctors to be on hand? They could be paid with union dues and they could negotiate in their collective bargaining agreement that the NFL allow these doctors full access. It’d be a second-opinion for every player, and seems like a good check. I don’t mean to impugn doctors here, but when a normal employee gets an injury or illness he doesn’t (or shouldn’t, anyway) go solely to his company provided clinician to determine whether he can work or not.

I don’t know if it’d fix these other issues, but I’d like to see teams have more independent doctors, and the players union could furnish them. Colleges and high schools have fewer choices for this, unfortunately.

That’s the question presented in the upcoming U.S. Supreme Court case. And while there has already been some hyperbole (ESPN: “Antitrust case could be Armageddon”), the case does present some real and interesting questions, including ones beyond the narrow issue of the NFL and other sports leagues — I know, it’s hard to imagine anything beyond sports leagues. Here is how the full issue was summarized by David Savage in the ABA Journal:

[I]n American Needle v. National Football League, the justices will decide a legal question that has long hung over pro sports. Are their leagues a “single entity” and, therefore, immune from antitrust laws, or can these independently owned teams be sued for conspiring to restrain trade? A suburban Chicago maker of stocking hats and caps, American Needle sued in 2004 after it was shut out from using NFL logos. The league had made an exclusive deal with Reebok. The suit was thrown out by the 7th Circuit, but the justices agreed to decide whether pro leagues are shielded from antitrust charges.

Upon reading this you probably have an impulsive answer right away. Either, “Hey, of course the NFL is just one entity!” Or “Hey, of course there are thirty-two teams!” But you have to understand the weird nature of sports leagues as a branch of joint ventures, and the stakes — that a ruling of them as a joint entity makes them immune from anti-trust action, even with respect to other possible competitors.

Without getting too complicated, baseball has long enjoyed a unique place in anti-trust law — it doesn’t apply to it. Other leagues have come close, but haven’t been so lucky. There’s really no reason for these leagues to have such unique status, but baseball does and football wants it, anyway it can get it. The best they can muster from a policy perspective is that “hey, we’re the NFL, we’re important right!” And, within the cloistered halls of the NFL (not to mention ESPN, and the like) the world begins and ends insofar as it affects The Game, be it terrorism or the stockmarket or whatever else.

But legal battles in real courts deal with larger themes. Specifically, the government, in the form of the Solicitor General’s office, was asked to chime in on this case. This put them in an awkward position because (a) American Needle has a very weak case, even apart from this “single-entity theory,” and (b) the government really only cares about this case insofar as it affects other joint-ventures beyond sports leagues. As Morrison & Foerster partner Deanne Maynard noted at a recent Supreme Court panel, if the Court rules in favor of the NFL, this case could have wide-ranging implications beyond just sports organizations.

“I think it could affect any kind of joint business venture,” she said. “It could mean that in doing these (joint) activities, the companies are a single entity.”

Moreover, here’s some excellent commentary and background from Lyle Denniston of SCOTUSBlog (written while the Justices were still considering whether to hear the case): (more…)

On the horizon is the University of Florida’s star quarterback, Tim Tebow, who will enter the draft next year. He could open the door to what was once virtually unthinkable in the N.F.L.: a quarterback with the size and sturdiness of a linebacker who reads the defense and has the freedom to run as often as he passes in the college-style spread-option offense.

In many ways, change has been forced on the N.F.L. because defenses are so fast and complex, and because fewer drop-back passers, fullbacks and blocking tight ends are being produced in a college game dominated by the spread.

So it is little surprise that almost all N.F.L. teams occasionally use a four- or five-receiver offense, and that Florida Coach Urban Meyer, who has all but perfected the spread with the Gators after giving it prominence at Utah, has been asked for advice from at least four N.F.L. teams, including the New England Patriots.

“I think it would have worked years ago,” Meyer said. “No one has had enough — I don’t want to say courage — no one has wanted to step across that line. Everyone runs the same offense in the N.F.L. A lot of those coaches are retreads. They get fired in Minnesota, they go to St. Louis. They get fired in St. Louis and go to San Diego. I guess what gets lost in the shuffle is your objective is to go win the game. If it’s going to help you win the game, then you should run the spread.”

I particularly liked his line about everyone running the same offense in the NFL. I, of course, wrote the same thing several weeks ago, and had many people tell me I didn’t know what I was talking about. (And anytime both Urban Meyer and Mike Leach are roughly on the same side of an issue, then that is probably the correct side.) And, Meyer might be a college guy, but he’s good friends with Belichick and, as the article pointed out, multiple N.F.L. teams have contacted him.

Jon Gruden will one day run the spread in the NFL. Either that, or he will die trying. People may not realize it, but Gruden coached the run and shoot under Walt Harris at Pacific, and gave some thought to committing to that offense full time. Instead he made a career choice to focus on the west coast offense. From that perspective (two NFL coaching gigs and a Super Bowl), it worked out. But he is not averse to being wide open, and he clearly is enamored with the wildcat and what the spread guys are doing in college. (Keep in mind that his brother Jay was an Arena league player and coach for a long time.) Gruden has spent the whole offseason focusing on the spread, including attending Urban Meyer’s coaching clinic at Florida this past spring (with Bill Belichick, who raved about Gruden’s clinic lecture). Anyway Gruden is back at it now that Vick has been signed:

Gruden is bullish on the limitless NFL possibilities of the spread offense and its baby brother, the Wildcat formation. It’s become all the rage in college football, and Gruden thinks the time is ripe to bring it in a big way to the pros. . . .

“I wanted to use it last year, but we had some injuries and shied away from it a little bit,” Gruden said. “But it’s been something I’ve been studying.

“When you pick up a college tape, 90 percent of those guys, you never see them under center. Ever. All you’re seeing is spread-read options. There are guys like Tim Tebow, who is going to be coming out next year, somebody is going to take him, and somebody is going to have a plan for him. Vince Young has struggled the last couple of years. But he was wicked in that Rose Bowl game against USC. He ran for 200 and threw for 200.

“Then there’s Vick. He’s certainly a candidate to run the spread. Everybody’s got a guy [who can run it]. Brad Smith with the Jets. Michael Robinson in San Francisco. Isaiah Stanback in Dallas. Everybody’s got a guy that can throw a little bit. I think there’s a wave coming.”